Shares of cyclical manufacturers are on the rise as second-quarter earnings reports approach. Among these key industrial stocks, Fastenal stands out for its early reporting. With investors eager for positive news, the company’s performance will be crucial for maintaining the upward momentum of industrial stocks.
A Closer Look at Fastenal
Fastenal (ticker: FAST) is a prominent industrial distributor, supplying a diverse range of small items to numerous manufacturing customers nationwide. As such, its earnings serve as a reliable indicator of the overall health of the industrial economy.
Q2 Expectations
Market analysts anticipate earnings per share of 53 cents from just under $1.9 billion in sales for Fastenal. In the previous quarter, the company reported earnings of 52 cents per share from similar sales figures. Comparatively, during Q2 2022, Fastenal delivered 50 cents per share from approximately $1.8 billion in sales.
Conference Call Announcement
To discuss the results, Fastenal’s management will be hosting a conference call at 10 a.m. Eastern time.
Navigating a Slower Growth Period
While Fastenal is experiencing growth, it is currently progressing at a slower pace compared to previous periods. One contributing factor is the ongoing contraction of the manufacturing economy. The Institute for Supply Management Purchasing Manager Index (PMI), which tracks industry growth, has remained below 50 for a consecutive eight months. Readings below this threshold indicate contraction, while values above signify expansion.
Manufacturing Stocks Show Promise amidst Contracting Economy
As the economy continues to contract, Wall Street remains optimistic about the potential of manufacturing stocks. Analysts and strategists are now favoring cyclical stocks as they anticipate an upturn in the economy. Katie Stockton, founder of Fairliead Strategies, highlighted the growing attractiveness of cyclical sectors in a recent market analysis. Similarly, Citi strategist Hong Li expressed confidence in industrial stocks by predicting strong earnings reports.
Furthermore, Citi industrial analyst Andrew Kaplowitz believes that the upcoming manufacturing upcycle will be substantial and long-lasting. Kaplowitz attributes this optimism to various “megatrends” including the electrification of the economy through electric vehicles and increased government spending on infrastructure projects.
The positive outlook is clearly reflected in manufacturing stock prices. Over the past three months, the iShares U.S. Industrials ETF (IYJ) has seen a 6% increase, while the iShares U.S. Consumer Staples ETF (IIYK) has experienced a 2% decline.
Given this recent outperformance, it becomes increasingly important for Fastenal earnings to meet or surpass expectations.